The National Association of Insurance Commissioners is continuing to look at internal controls reporting requirements for non-public insurers.[@@]
An NAIC working group will convene Wednesday in Orlando to discuss proposals to impose Sarbanes-Oxley-like regulations on mutual insurers and privately held insurers.
“Much of the industry does not want this,” says William Boyd, financial regulation manager for the National Association of Mutual Insurance Companies, Indianapolis. “What we have stressed again and again is that regulation of insurance is already stronger than that applied to public companies and that regulators need to justify, via specific cases and cost-benefit analysis, what they propose to do.”
The effort by the Kansas City, Mo.-based group to impose SOX-like rules has been spearheaded by Virginia regulator Doug Stolte, co-chair of the NAIC-AICPA liaison panel. He and other regulators have argued that non-public insurance companies need to be held to the same standard of reporting as all public companies.
“The risk being transferred by the policyholder is not to protect against the loss of discretionary income, as is the case in many situations for public investors,” Stolte says. “Rather, the policyholder’s risk of loss consists of items that are essential to one’s continued health and livelihood: Their home, personal property and protection of income.”
Both sides have agreed on a standard for ensuring the independence of auditors by requiring some rotation, and now they are working on a proposal that will set rules for the independence of board members who sit on audit committees.
But Section 404 of the Sarbanes-Oxley Act, which requires new internal controls assessments and attestation, has been the greatest bane for industry in general, and the property-casualty and life trades are working to ensure that the new rules are not too burdensome for the non-public insurance companies, who currently are not subject to them.
The insurance industry also is facing new pressure from the U.S. Securities and Exchange Commission to shed more light on how reserves are established for long-term claims. In addition, the NAIC has expanded the actuarial opinion rules to require more commentary on and disclosure of how reserves are arrived at on the condition that the disclosures remain confidential.